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Should We Bail Out Cities?

In the latest City Journal, Steve Malanga writes about an issue that hasn’t yet gotten a lot of attention but is virtually guaranteed to become a serious topic of national debate in the not-so-distant future: Do we bail out cities that have become insolvent?

Malanga quotes a Steve Rattner op-ed from the summer: “The 700,000 remaining residents of the Motor City are no more responsible for Detroit’s problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.” Rattner is right, of course; Detroit was largely undone by massive structural changes in the auto industry, which now employs only a small fraction of the people that it used to. And yet, there’s more to the story, isn’t there? Detroit’s biggest problem is the combined burden of its pension funds and retiree health benefits. And the reason that its pensions are in such a state is that they were bizarrely mismanaged by people who apparently didn’t quite get fifth-grade math.

It’s true that it would be easier to deal with these problems if Detroit were more like New York and less like, well, Detroit. But it’s also true that if Detroit had been responsible about its pension contributions instead of underfunding the pensions while simultaneously handing out extra benefits above and beyond what the city already couldn’t afford, its retirees would not now be facing dire straits. New Yorkers did not get to vote for the corrupt Detroit politicians who appointed the terrible Detroit pension managers who made all of Detroit’s problems so much worse than they had to be. Why should they have to pick up the check for all those mistakes?